HP CEO: Xerox's offer will have to address these 3 things
It’s time for Xerox to print out a better offer for HP’s board to consider, or just take their ball and go home.
HP sent its strongest signal yet Thursday that it has no interest in joining forces with fellow printer maker Xerox, which went hostile with its offer for HP several days earlier. HP’s board unanimously rejected Xerox’s unsolicited offer in a blistering letter
The company cited unreasonable estimates on cost cuts by Xerox management, an inferior Xerox business model, an ill-equipped Xerox management team and concerns about a combined company capital structure. HP said shareholders would be better served if HP executives are able to execute on their own aggressive restructuring plan.
“What this [the rejected offer] is doing is transferring value from HP shareholders to Xerox shareholders,” said HP CEO Enrique Lores on Yahoo Finance’s On the Move, noting that he has had conversations with Xerox CEO John Visentin but would not disclose any details on those talks. “We think there is potential value in consolidation but any combination of the two companies need to address the three problems: right value exchange, needs to create the right capital structure and raised on realistic assumptions of the potential synergies.”
Carl Icahn — the billionaire activist who owns about 5% of HP and 11% of Xerox and has been pushing for the combination — continues to be vocal the deal should happen. Speaking as an HP shareholder, Icahn told Yahoo Finance HP shareholders should be allowed to decide for themselves on whether to accept the offer from Xerox.
Icahn adds he sees no reason why HP continues to “trash” Xerox because 90% of the offer is in cash.
The rejection of Xerox — again — comes as HP enjoys a wave of good news of late. Taken together, the message is clear to HP investors: the company doesn’t need Xerox’s baggage.
HP’s fiscal first quarter earnings last week beat analyst estimates by 11 cents a share, fueled by favorable input costs in the PC business and stable printer margins. HP also took the wraps off a new capital allocation plan, which surprised many on the Street.
The printer and notebook maker revealed a new $16 billion capital allocation program spanning fiscal year 2020 to fiscal year 2022. Under the plan, HP increased its stock buyback authorization to $15 billion from $5 billion. One source told Yahoo Finance the company could repurchase more than 40% of its market cap by 2022, which is likely to lend support to HP’s stock during a period of heavy restructuring.
Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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